Difficult First Self Storage Deal

[Bob Vollmer]

Alright BP and @Henry Clark. I could use some advice on how to lock this property down. I'll do my best to keep this succinct, but there are some topics that may need further explanation. Here's the scenario:

Motivation: Seller moved out of the area a few years ago for family reasons and has had her old neighbor manage the facility. She had been holding onto one of my mailers for a couple months and after a string of break-ins back in July reached out to see if I wanted to buy the property. She owns it free and clear. 

Property details: Built back in the late 80's and early 90's and it has stayed there. 3 drive up buildings with ~9,800 rentable square feet. Unit mix is 16 5x10, 80 10x10 and 5 10x20. Old chain link fence around 3/4 of the property. No barbed wire. No gate. No electricity. No lights. No security. Everything is done old school (ie pencil and paper) and records are virtually non existent. 2 of the 3 buildings are traditional drive-ups on concrete pads - these are in OK shape at best but definitely not great. Last building is a row of old portable units (from the 80's) that are showing their age. No pavement, all gravel. Steep drive from a county road leading down into the facility makes it difficult to add a gate. 1/2 the property is in the 100 year flood plain. Great location and visibility, but zero room to expand. Only value add is improved management, adding online setup/pay, security, raising rents and quality of the facility itself.  The area has a HUGE demand for storage with limited supply - nearly everywhere is full. Due to geographic constraints, buildable land that is zoned correctly is almost non-existent. The town that it sits in is only 6,000 people and the has openly said that they do not want any more storage. 

Financials: Seller shows rents received as $55,300 - but once you include the cash they've been collecting, rents received is closer to $62,000/yr. Rents are significantly below market rates but since the facility is so old and unable to offer the same level of quality, I'm not sure how close to market I can get. Leaving the current buildings where they sit and doing a little improvement to the security and management, I'm confident that I could get it closer to $75,000-$80,000 gross. Seller wants "mid to high $500's". Willing to owner carry but wants at least $75,000 down, $2,500 monthly payment, a "reasonable" interest rate and either a short term or a 5 year "additional down" lump payment. Property will not appraise for even close to what she wants with traditional financing. She's trying to sell it at a 4 cap...

Competition: There is a brand new facility directly across the street with much higher rates - but they're on a paved lot, nice security fence, gated, security cameras, lights, etc. They're 100% full. Another facility sits roughly 4-5 miles away and has the same upgrades as the brand new facility minus paving and is also 100% full with much higher rates. The next town over (~7 mi.) has a few nicer, newer facilities that are also full. The big caveat is there are two new facilities in the works that will add ~60,000 rentable sqft. but seem to be intended for use by the apartments and tiny homes being built around them. 

Struggles: 1) steep entrance off of a fairly busy road makes it tough to add a gate. 2) ballpark quote from electrician to run power to property and add lights is ~$40,000. 3) The town has told me that if I replace the old portable units, I would have to put a water storage tank and a fire hydrant on the property. Waiting on cost. 4) If I use traditional financing, I would need flood insurance which would add ~$5,000/yr. to my costs. 5) If I were to replace the portable units with a traditional drive up, I'm ball parking a cost of ~$120,000 from soils test to install. 

Questions that I have:

1. How important is it to have a gate if you have lights? 

2. Would you rather have a gate or cameras at your facility?

3. How would underwrite a row of buildings that are near the end of their life expectancy but are still operable (they have minor water intrusion issues, I've heard of claims of rodents going through wooden floor, etc.)?

4. How much weight would you give the facts that the town doesn't want anymore storage built and there is a huge demand?

5. Would you ever consider replacing old portable units with new portables just to get around city requirements associated with building permits? From my understanding, portables don't last as long and don't really save much money.

There is a ton of additional information and questions but considering this post is already a small book, or at least a sizable pamphlet, I'll end it here. I'd appreciate any input or conversation regarding this place. There's a ton of potential but it will come with a large cost and a lot of work....